Mortgage Market Update

This week brings us the release of only two monthly economic reports for the markets to digest, in addition to a couple of potentially relevant Treasury auctions. The week starts off light with nothing of importance scheduled for tomorrow, Tuesday or Wednesday morning. It should be a relatively calm week for rates, although, we still should see a little movement.

The first event of the week will come Wednesday afternoon when results of the 10-year Treasury Note auction are posted at 1:00 PM ET. If investor demand was high for these securities, we may see bonds rally during afternoon trading. However, weak interest in these types of sales could lead to bond selling and an increase in mortgage rates. This process will be repeated Thursday when 30-year bonds are sold.

Next up is May's Consumer Price Index (CPI) early Thursday morning that measures inflationary pressures at the consumer level of the economy. This data is watched closely and has the potential to lead to significant volatility in the bond market and mortgage pricing if it shows a major surprise. Rising inflation makes a bond's future fixed interest payments less valuable to investors, so weaker than expected levels would be ideal for mortgage rates, especially since traders are concerned about inflationary pressures as the economy rebounds from the pandemic. Forecasts are calling for a 0.4% increase in the overall reading and the same in the more important core data that excludes volatile food and energy costs.

June's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning to close out this week's calendar. This index measures consumer willingness to spend and usually has a minor to moderate impact on the financial markets. It is expected to show a reading of 84, which would be an increase from May's 82.9. A smaller than expected reading would be considered good news for bonds because it would indicate that surveyed consumers were less optimistic about their own financial and employment situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it probably will not influence mortgage rates considerably unless we see a significant variance from forecasts.

Overall, look for Thursday to be an active day for rates due to the CPI release. Wednesday afternoon may also bring a change in rates after the 10-year Note auction results are posted. The calmest day for rates will likely be Tuesday. While this doesn’t appear to be a busy week for rates, with exception to Thursday’s activities, we still may see some movement day to day. Therefore, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.